What if We Choose
the Wrong Strategic Partner?

 
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At the time Buildsoft approached us, they were the leading supplier of back office software to homebuilders. More than 3000 small and mid-sized homebuilders used Buildsoft to handle their orders, payables, receivables, and other management tasks.

Buildsoft had developed an ambitious plan to exploit this strong position. Together with national retailer Lowe’s Home Improvement, Buildsoft was preparing to launch BuildNet, an online purchasing network. BuildNet would allow builders to place orders online, receive volume discounts and schedule deliveries all from within the Buildsoft environment they were already using.

Buildsoft contacted us six months before launch to validate the BuildNet plan with current and prospective customers. Within 30 days, we conducted interviews with 50 local homebuilders to understand their business issues, their wish list for purchasing automation, and their reactions to BuildNet’s value propositions.

A Three-Legged Stool

Builders described three distinct issues they would have to address if BuildNet was going to be successful. These issues meant that BuildNet adoption rested on a three-legged stool: if any one leg of the stool is weak or broken, the stool fails. The three issues were:

  1. Builders had to trust Buildsoft to handle critical aspects of their business

  2. Builders had to be willing to place online orders through BuildNet

  3. Builders had to want to do business with BuildNet’s suppliers

Buildsoft had already earned its customers trust by supplying the software tools they depended on to run their businesses, so the first leg was sound. Builders were also already familiar with internet technology, and they were cautiously optimistic about online transactions, so everyone could see the path to the second leg becoming solid.

However, the third leg presented a problem. When we asked the 50 builders to identify their top two suppliers, their answers were:

  • 48 different local suppliers

  • Home Depot (named by 41 builders)

Everything Hinges on Credit

Local builders uniformly preferred local lumberyards to any of the national chains. When we discussed the reasons, the answer was similarly uniform: Credit.

The local suppliers offered flexible credit accounts to the local builders. Home Depot, on the other hand, offered a limited credit line that was not large enough to cover the cost of building a single home. The decision to use a new supplier, such as BuildNet’s partner Lowe’s, would similarly hinge on the amount of credit offered.

Based on the clear message from their customers, Buildsoft needed to achieve one of these two alternatives to make BuildNet a success:

  • Convince Lowe’s or Home Depot, both NYSE-traded companies, to offer large credit accounts to local builders. Because those companies offer credit through relationships with large banks, any changes to credit offerings would be difficult and slow.

  • Enroll hundreds of local lumberyards to become supplier partners on the BuildNet network.

Slower Than Expected Rollout

Knowing that the first alternative was unlikely, Buildsoft focused on the second, committing to a long-term region-by-region rollout. This path was significantly slower and more expensive than their original plan to launch nationally with Lowe’s. Needing more cash, Buildsoft ultimately failed when a planned IPO was derailed after 9/11.

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Lessons Learned: If One Leg Breaks…

Buildsoft had assumed that Lowe’s, a national lumberyard chain, would be attractive as a primary supplier to local homebuilders. This assumption, which was one of three critical customer behavioral hurdles, turned out to be wrong because Lowe’s could not offer large enough credit lines. External factors like these, outside the primary focus of the BuildNet online marketplace, often go unnoticed until each assumption is rigorously validated with the target customer.